Why Foreign Investments Don’t Work in Today’s Cuba

Dimas Castellanos, 17 January 2017 — By 2007, after forty-eight years of
revolutionary rule, inefficiency and a lack of productivity had turned
state-run farmland into fields infested with marabú weed. Meanwhile,
food prices were increasing on the world market. In light of this
situation, General Raúl Castro proposed “changing everything that needs
to be changed.”

Fast forward five years to May 2013 when the vice-president of the
Council of State, Marino Murillo Jorge, publicly acknowledged that the
methods used for decades to manage agricultural lands had not led to the
necessary increase in production.

The inefficiency was reflected in the gross domestic product (GDP),
which fell regularly for years until reaching 1% during the first
quarter of 2016 before falling to 0.9% at year’s end. In other words,
Cuba entered into recession, a period of negative growth, in 2017. The
result made the need for foreign investment a priority, a need from
which no nation can escape, much less an underdeveloped country in a
state of crisis.

In 1982 Cuba passed Decree-Law No. 50, which legalized foreign
investment. At the time, the prevailing attitude towards investors in
those parts of the world which received Soviet subsidies was hostile.
But the dissolution of the Soviet Union made it imperative in 1995 for
the government to enact Law No. 77, a statute with many restrictions and
an absence of legal protections for investors, who suffered the negative
consequences.

Of the roughly 400 joint venture firms that began operation in 2002,
half ended up leaving the country. In spite of the negative result, the
government did not repeal the statute until it became clear that
investors were showing little interest in the Mariel Special Development
Zone.

Law No. 118 was passed in March 2014 but, though more flexible than its
predecessor, it too proved to be inadequate. According to Cuban
authorities themselves, the country needed sustained GDP growth of 5% to
7%. Achieving this would have required income and investment rates of at
least 25%, which would have meant annual investment figures of between
2.0 and 2.5 billion dollars.

Last year, foreign investment did not exceed 6.5% of these figures.
Under current conditions the only way of even getting close to this
target would be to implement a series of measures, including the following:

1. Allow Cubans — both those living on the island as well as those
living overseas — to directly invest in the economy.

2. Acknowledge the social purpose of property and private propeerty.
Abolish prohibitions against its concentration in the hands of
individuals or legal entities, the only purpose of which is to exclude
Cubans from economic enterprise.

3. Allow Cubans to engage in all manner of private sector manufacturing
and customer service, and grant them legal status.

4. Provide investors with legal guarantees that allow them to settle
disputes with their Cuban business partners before a judicial body that
is not subordinate to the party or the state, which otherwise would make
the government both judge and plaintiff.

5. Allow employers to freely hire their own employees.

6. Eliminate the dual currency system and its different exchange rates,
which would provide for the emergence of a domestic consumer market and
which would, in turn, encourage investment.

7. Recognize the right of workers to organize and form labor unions, a
principle enshrined in Convention 87 of the International Labor
Organization, to which Cuba is a signatory; in the Universal Declaration
of Human Rights, of which Cuba was one of the promoters in 1948; and in
the UN’s Covenant on Civil and Political Rights and the Covenant of
Economic, Social and Cultural Rights, which Cuba has also signed but has
not ratified.

These obstacles arise out of a history of antagonism towards investors
and a failure to pay creditors. Therein lies the main cause of the
country’s poor foreign investment climate, not the US embargo, which was
relaxed under President Barack Obama. The level of Cuba’s state
imvolvement in investment is uncommon for companies which operate in a
market economy. Until that changes, the results will remain the same.

In a meeting of the Cuban parliament on December 27, the head of the
Economic and Planning Ministry, Ricardo Cabrisas, observed, “Foreign
investment continues to be quite low. It is not yet playing a
significant role in economic development.”

Meanwhile, the president of the Council of State, Raúl Castro, stated,
“Reinvigorating foreign investment in Cuba is of great importance… It is
necessary to overcome, once and for all, the outdated and pervasive
prejudice against foreign investment. We must divest ourselves of
unfounded fears of capital from overseas.”

Therefore, if reviving a stagnant economy is impossible without a strong
injection of capital and if “changing everything that needs to be
changed” is more than mere rhetoric, then either a new investment law is
needed or the current one needs to be substantially overhauled. In
either case the word “foreign” should be dropped, making it simply the
Investment Law.

Cuba is the only country in the region whose residents lack a right as
basic as being able to participate fully in economic activity in spite
of ample business opportunities and the professional training to do so.
If this problem is not resolved, it will not only be a denial of our
economic history but also of our social struggles and José Martí’s
republican principles, which envision equality before the law for all
those born in Cuba and for its many small property owners.

Besides being harmful to the nation, this prohibition violates the
current constitution, which in Article 14 states, “The economy is based
on socialist ownership by all the people of the fundamental means of
production.” In other words the people, the supposed owner, has no right
to participate in the investment process, a status contrary to law,
western culture, of which we are a part, our economic history and human
dignity.

A new investment law, one without qualifiers, would be an important,
necessary and long-awaited sign of change. Proof that, despite long
delay, the government is really willing to change everything that needs
to be changed.

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